Fiscal forecasts and political systems: a legislative budgeting perspective

Which are the institutional and constitutional settings that best reduce the tendency to manipulate fiscal forecasts? This paper addresses the question by examining the quality of fiscal forecasts at different stages of the budget process in 13 European Union countries by using annual forecast vintages (1999–2013) from Stability and Convergence Programmes. Both the role of political structures and the balance of power between the executive and the legislature are assessed as determinants of systematic forecasting errors. The findings suggest that the forecasting bias is more effectively countered in presidential and semi/presidential systems, in parliamentary systems with strong bicameralism and when executive/legislature relations are constrained by checks and balances. Confirmation of these results is also provided by linking our approach to the fiscal institutionalist approach based on the form of fiscal governance and the stringency of fiscal rules. In terms of institutional capacity, if fiscal rules and legislative organizational and research capacity counter the executive’s monopoly of fiscal forecasting, strengthening the legislature’s formal powers negatively influences the fiscal forecast accuracy. Indeed, strategic considerations may induce the executive to anticipate the legislature’s amendment or rejection of the tabled budget by means of more favourable economic and fiscal assumptions. The crisis and its urgencies crisis seem to have weakened the effect of institutional executive/legislature relations on fiscal forecast accuracy.